GOP Tax Reform—Just Not Yet

Republicans try to undermine their 2017 agenda.

Republicans say they want to clean up the tax code in 2017, but apparently they want to give the current code one more special-interest workout for old-time’s sake. Witness the lame-duck effort to pass the annual boondoggle known as tax-extenders.

Some 47 “temporary” tax subsidies expire at the end of the year, and America’s crony capitalists are putting the screws to Congress to give them another extension. Congress typically added these industry payoffs to certain “must pass” annual tax reauthorizations, such as the research and development credit. But at the end of 2015 Republicans made many of the more worthy provisions (such as the R&D credit) permanent.

The 47 leftovers are pure special-interest favors for industries that range from plug-in motorcycles to timber outfits to real-estate investment trusts. One credit set to expire amounts to a dollar per gallon gift for certain biofuel producers. There’s also the infamous wind production tax credit, which first appeared in 1992 and that the industry assured Washington would only be necessary for a few years. And don’t forget the bennie for the paupers who own Nascar racetracks and another for race horses.

Veronique de Rugy
and
Adam Michel
at George Mason’s Mercatus Center describe 43 of the 47 provisions as “tax expenditures” that will cost taxpayers $19 billion over a decade. They note that 29 are “pure tax privileges” for special interests. Another 14 are more “narrowly tailored” privileges for favored interests that include special depreciation and expensing. None of these can be justified in the name of helping the overall economy.

Passing another tax-extender bill also makes tax reform more difficult next year. Adding them into the current code means more political voices against reform that eliminates loopholes as well as raising the 10-year cost of reform. By baking some $560 billion of more meritorious tax credits into the 10-year budget baseline last year, House Speaker
Paul Ryan
was avoiding having to offset them with “pay fors”—thereby allowing Congress to cut tax rates more deeply. Wind-turbine operators, of all people, shouldn’t be handed more political leverage to negotiate a special deal in the tax fight to come.

Republicans have a rare political moment next year to accomplish a major tax reform. Why muck it up with lame-duck politics as usual?